Mine mostly circulate in the family - my cousin, sister & I all have similar taste in books; and now my nephew is old enough to read more adult books so he's getting in on the rotation too.
The way we do it is we initial the books as we read them. If you want to keep the book, circle your initials. When the last person gets the book, if someone circled their initials we route the book back to that person; otherwise the last reader is free to dispose of the book however they see fit (or keep it).
I usually keep books that are part of a series as I tend to re-read the whole series as each new one comes out. On those, I wait until the whole series is done before I send the books out into rotation.
Books that end up with me that I don't want to keep either go to the thrift shop, or I exchange them for credit at the local used bookstore.